You and your best buddy are sitting on the back patio, when boom – after a few glasses of wine the two of you come up with an incredible business idea. Over the next few weeks, you can’t get the idea out of your head – and neither can your BFF. There’s an obvious white space in the market. There’s clear market demand. It’s something you’re both passionate about. It’s time to decide if you’re actually going to make it happen. Sound relatable?
Before going into business with a friend, family member, or even your spouse, it’s important to weigh the pros and cons. Businesses are longterm commitments, and like any longterm commitment, they come with emotional and financial responsibilities.
Starting a business with a friend can be an exciting and potentially rewarding venture. It offers the opportunity to combine your skills, share a common vision, and build something meaningful together. However, it also comes with its own set of challenges and potential risks.
In this article, we’ll explore the pros and cons. Then we’ll get into the steps to take before going into a business with a friend. Taking the time to weigh your options will help you ensure that making this decision aligns with your goals and aspirations.
- Shared Trust and Understanding: When starting a business with a friend, there is typically an existing foundation of trust and understanding. This can be a valuable asset, as you are more likely to have a solid rapport and open communication channels. Mutual trust can foster a strong working relationship and increase efficiency in decision-making processes.
- Complementary Skills and Synergy: Friends often possess different skill sets, and this diversity can be advantageous in a business partnership. By combining your strengths, you can create a well-rounded team. Synergy arises when each partner’s expertise complements the other, resulting in increased innovation, problem-solving abilities, and overall productivity.
- Shared Vision and Goals: Starting a business with a friend often stems from a shared vision or common goals. You are likely to have similar values, aspirations, and motivations. This alignment can create a sense of purpose and commitment to your business, enhancing your ability to overcome obstacles and stay focused on long-term objectives.
- Emotional Support: The journey of entrepreneurship can be both exhilarating and challenging. Having a friend as a business partner can provide a strong support system during difficult times. They understand your perspective, and their emotional support can help alleviate stress and maintain motivation, which is particularly beneficial in the early stages of a business.
- Flexible Decision-Making: As friends, you may find it easier to reach decisions through informal discussions and consensus-building rather than formal procedures. This flexibility can expedite the decision-making process, allowing you to respond quickly to market changes and seize opportunities.
- Cost-Sharing: Starting a business requires capital investment. Sharing the financial burden with a friend can make it more manageable, as you can pool resources and reduce individual financial risk. This can be especially important in the initial stages when cash flow might be limited.
- Strained Personal Relationships: Business partnerships can put a strain on personal relationships. Disagreements, conflicts, and the stress of running a business may spill over into your friendship, potentially causing resentment or long-term damage. It is essential to establish clear boundaries, effective communication, and conflict resolution strategies to mitigate these risks.
- Differences in Work Styles: While diversity in skills is beneficial, differences in work styles can create challenges. Your friend may have different priorities, work habits, or levels of commitment. It is crucial to align expectations and establish a clear division of responsibilities from the outset to avoid conflicts and ensure a harmonious work environment.
- Limited Network Expansion: Starting a business with a friend may limit your network expansion opportunities. Without diverse networks, you may miss out on potential clients, suppliers, or strategic partnerships. It is essential to actively cultivate relationships beyond your immediate circle to broaden your business connections and increase opportunities for growth.
- Lack of Expertise and Experience: Starting a business requires expertise and industry knowledge. While your friend may be trustworthy and supportive, they might not possess the necessary skills or experience for certain aspects of the business. It is crucial to assess the expertise gap and consider how it can be addressed through additional hires, training, or external consultants.
- Difficulty in Holding Each Other Accountable: In a friendship-based business, it can be challenging to hold each other accountable for performance or decision-making. Constructive criticism and honest feedback are crucial for growth, but it may be difficult to navigate these conversations without jeopardizing the friendship. Establishing clear expectations and a framework for accountability can help mitigate this challenge.
- Exit Strategy Challenges: Exiting a business is an important consideration for any entrepreneur. However, it can become more complex when friendship is involved. Disagreements over valuation, the desire to pursue different paths, or changing priorities can strain relationships during the exit process. It is vital to have open and honest discussions about exit strategies from the beginning and document them in a formal agreement.
If the pros outweigh the cons, then going into business with a friend can be exciting, rewarding, and fun. It can make the ups and downs more manageable when you’re in the weeds together – because when you’re starting a business, there will definitely be days, weeks, or months when you’re stuck in the weeds. So how can you set yourself up for success?
Things to Do Before Going Into Business With a Friend
If you’ve decided to go into business with a friend, it’s important to approach it with careful planning and open communication. Here are some recommendations to increase your odds of success:
- Define Roles and Responsibilities: Clearly define each partner’s roles, responsibilities, and areas of expertise within the business. This will help avoid confusion and ensure that each person knows what is expected of them.
- Develop a Partnership Agreement: Create a partnership agreement that outlines the terms and conditions of your business partnership. Include details about profit-sharing, decision-making processes, dispute resolution mechanisms, and exit strategies. It’s wise to get legal support, even at this early stage. That way your agreement is clear from the get-go.
- Communicate Openly and Honestly: Establish a culture of open and honest communication from the beginning. Regularly discuss business matters, challenges, and potential conflicts to address issues proactively. Encourage feedback and create a safe environment where both partners can express their opinions and concerns.
- Set Clear Boundaries: Separate business and personal matters by establishing clear boundaries. Define when and where business discussions will take place and avoid mixing personal issues with work-related decisions. This will help maintain a healthy balance between your business and friendship. Just because they’re your friend, doesn’t mean they want you texting them about a delayed shipment at 10pm on a Saturday.
- Plan for Succession and Exit Strategies: Discuss and plan for the long-term future of the business. Consider scenarios such as one partner wanting to exit or retire. Develop strategies for transferring ownership or bringing in new partners if necessary. Having a well-thought-out plan in place can help minimize disruptions and potential conflicts in the future.
- Establish Financial Transparency: Maintain financial transparency by setting up proper accounting systems and regularly sharing financial reports with your partner. This transparency will build trust and ensure that both partners have a clear understanding of the financial health of the business.
- Seek Professional Advice: Consider consulting with professionals such as accountants, lawyers, or business advisors who can provide objective guidance and help navigate potential challenges. Their expertise can be invaluable in structuring your business and resolving any legal or financial issues that may arise.
- Maintain a Healthy Work-Life Balance: Remember to prioritize maintaining a healthy work-life balance. Engage in activities outside of work to nurture your friendship and prevent burnout. Set aside time for non-business-related activities and make a conscious effort to separate work and personal time.
- Adapt and Evolve: Be open to adapting your business strategies and plans as needed. Market conditions and industry landscapes can change rapidly, so stay flexible and open-minded. Regularly reassess your goals and strategies to ensure they align with the evolving business environment.
- Celebrate Milestones and Successes: Take the time to celebrate milestones and successes together. Recognize and appreciate each other’s contributions and accomplishments. Celebrating achievements will strengthen your partnership and motivate you to strive for continued success.
While going into business with a friend can be rewarding, it takes diligence, clear communication, and a shared commitment to making the partnership work. By following these recommendations, you can increase your chances of building a successful business while keeping your friendship in check.